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CORPORATE TAXATION INDONESIA
The standard corporate income tax in Indonesia is 22%, effective from 2022. The Indonesian government and tax authorities have been implementing various measures to reduce and attract foreign investment into the country. The tax year is the calendar year in Indonesia.
Our guide covers all the basic information you need to know before registering an Indonesian company.
Indonesia resident corporations will be taxed on their worldwide income, whereas a foreign company carrying out business activities in Indonesia and qualified as a permanent establishment will usually have the same tax obligations as a resident corporation.
Indonesia does not impose any provincial or local taxes on income in Indonesia.
CORPORATE TAX RATES IN INDONESIA
Small company discount
A company that generates an annual turnover of not more than 50 billion rupiah (IDR) is entitled to a 50% tax discount on the standard rate.
Certain qualifying enterprises are taxed 0.5% of turnover if the company does not exceed the gross turnover of more than IDR 4.8 billion.
Public company discount
A 3% discount off the standard rate is extended to public companies that satisfy certain conditions. The effective tax rate for such a company will be 19%.
Based on the Indonesia tax regulations, a company will be regarded as Indonesian tax resident if it is established or domiciled in Indonesia, and/or if its place of effective management or control is in Indonesia.
Non-resident companies are generally those companies that are established outside of Indonesia without any permanent establishment in Indonesia and generating income from the country.
TYPES OF TAXES IN INDONESIA
Value Added Tax (VAT)
The standard rate for VAT in Indonesia is 11%. VAT registration is mandatory for companies that exceed taxable goods and/or taxable services of IDR 4.8 billion per annum.
VAT-registered companies (Pengusaha Kena Pajak – PKP) must submit the VAT return monthly. The monthly VAT return is due by the end of the following month, and the VAT payable must be settled prior to the submission.
Companies will incur penalties for late returns and must pay a fine of IDR 500,000 and 2% per month from the VAT due, respectively.
Withholding Tax in Indonesia (WHT)
Income payments payable to non-residents, such as dividends, interests, royalties, service fees, pensions, rental, and others, are subject to a 20% withholding tax. Certain exemptions are available if the country of remittance has signed a double tax agreement with Indonesia.
Withholding tax payment must be settled by the 10th day of the following month.
Dividend payments to an Indonesian company by a resident company is exempted from withholding tax payment. The recipient of the such dividend income does not have to pay any corporate taxes further.
Luxury-goods sales tax (LST)
Certain luxury goods are subjected to LST on import or delivery by the manufacturer to another party. Examples of such goods include but are not limited to motor vehicles, luxury residences. The rates currently range from 10% to 95% depending on the goods.
A company must pay import duty ranging from 0% to 15% on the customs value of certain imported goods. Custom value is arrived at by adding the cost, insurance and freight amount.
Land and buildings tax
Land and buildings tax (Pajak Bumi dan Bangunan or PBB) is part of regional taxes.
PBB rate is a maximum of 0.5%, and the tax due is calculated by applying the tax rate on the sale value of the tax object (Nilai Jual Objek Pajak or NJOP) (ranging from 20% to 100%) deducted by non-taxable NJOP. The non-taxable NJOP is set at a minimum of IDR 10 million.
This tax is applied to individuals or businesses that consume goods that contain carbon or engage in activities that produce a certain amount of carbon emissions over a given period of time.
TAX REPORTING REQUIREMENTS IN INDONESIA
Indonesian companies must pay corporate income tax by the end of the fourth month after the year-end. For example, if the company year-end is 31 December. The company must pay the corporate tax by 30 April of the following year.
Corporate income tax returns must also be completed by the end of the fourth month after the end of the reported tax year.
Companies can apply for extensions for a maximum of two months if you submit a written notice to the Directorate General of Tax before the tax return deadline.
Companies that are not earning any income, must still submit their annual tax report.
TAX HOLIDAY AND TAX INCENTIVES
Companies in the pioneer industries can be entitled to a corporate tax reduction of up to 100% for 5 to 20 years. The minimum investment is IDR 500 billion, and the tax holiday length depends on the investment’s value.
Some of the qualifying industries include but are not limited to, Manufacturing, oil and gas, petrochemical, agriculture and digital economy.
TAX ALLOWANCES IN INDONESIA
Indonesian companies investing in specific business sectors or areas that are less developed in the region and are a high priority on a national scale are permitted further tax allowance.
Allowances are available for such businesses in the form of a net income reduction up to 30% of the amount of investment in tangible fixed assets that will be charged at 5% per year for six years accelerated depreciation and amortization.
The business can also extend the period of loss carry forward up to ten years. Such businesses can also benefit from a 10% withholding tax rate on dividends distributed to foreign shareholders unless relevant tax treaties provide a lower tax rate.
Is Indonesia a tax haven?
Indonesia is not regarded as a tax haven. Companies setting up in the region will be subjected to a standard tax rate of 22%.
Is there income tax in Indonesia?
Yes, Indonesia charges income tax on individuals and corporations.
How is income tax calculated in Indonesia?
Individual income tax is calculated on a progressive income tax rate. Corporate income tax is calculated based on a 22% standard rate unless the company qualifies for certain exemptions.
What is the corporate tax rate 2023 in Indonesia?
The corporate tax rate in 2023 in Indonesia is a standard rate of 22%.
Who is not eligible for tax incentives?
Companies investing in specific business industries or in certain less developed regions that are a high priority on a national scale are entitled to tax incentives, otherwise the company will generally have to pay a corporate tax of 22%.
Why is the Indonesian government lowering corporate taxes?
The Indonesian government is gradually lowering its corporate taxes to attract foreign investors to invest in the country or relocate their manufacturing hub to Indonesia which will result in job creation and boost the local economy.
What is a Tax ID number?
Indonesia’s Individual tax ID number is also known as Nomor Pendaftaran Wajib Pajak (NPWP).
NPWP is a 16-digit identification tax number allocated to an organization for tax filing purposes. Organisation will be identified by their Tax ID number for matters related to taxation.
Do foreigners need to pay taxes in Indonesia?
Yes, Non-resident foreigners will have to pay taxes on all locally sourced income. Resident foreigners will have to pay taxes on all local and international sourced income.
What expenses are not deductible in Indonesia?
Some examples of not deductible expenses include the following.
- Benefit in-kind from an employer to the employees
- Non-qualifying Gifts and donations
- Income tax payment
- Tax penalties
The above list is not exhaustive.
When is corporate income tax paid and filed?
Indonesia corporate income tax must be filed by the fourth month after the end of the calendar year. The tax payment must be completed by 30th April of the following year.
When is the year of assessment for Indonesian companies?
The year of assessment for Indonesian companies is the calendar year, which is 1 January to 31 December.
What are the import restrictions and regulations in Indonesia?
Except the goods that are prohibited, restricted or determined by law, all other goods can be exported or imported. The Ministry of finance has published a list of goods that are restricted and prohibited.
The Exporters or Importers are responsible to fulfil the requirements of export or import restrictions and prohibitions. Exporters or Importers should submit the supporting documents to fulfil the export or import restrictions and/or prohibitions along with the import declaration to Customs.
Are there any preferential import tariffs in Indonesia?
Certain preferential Tariffs are provided for several imported goods from countries with a Free Trade Agreement with Indonesia. Indonesia has a few trade agreements. Examples listed below.
- Japan (Indonesia and Japan for an Economic Partnership Agreement – IJEPA)
- ASEAN (ASEAN Trade in Goods Agreement – ATIGA)
- China (ASEAN-China Free Trade Area – ACFTA)
- Korea (ASEAN-Korea Free Trade Area – AKFTA)
- India (ASEAN-India Free Trade Area – AIFTA)
- Australia and New Zealand (ASEAN-Australia-New Zealand Free Trade Area –
- Pakistan (Indonesia-Pakistan Preferential Trade Agreement – IPPFTA)